Industry Committee on Feb. 7th, 2017

[Chandra Arya, Liberal, Nepean, ON]

Suppose a corporation comes with none of these, but sticks to, say, geographical diversity or workplace diversity. Maybe I have a manufacturing company, and the board might decide that I need to have a diverse board, that I need one representative from the shop floor, one from the supervisor level, one from middle management, and, oh yes, I need to hire a couple of women also. This would be acceptable under this bill, right?

[Mitch Davies]

Mr. Chair, I think I'll just go back to the drafting concept. The word is not defined in the statute, and this was purposeful. If we were seeking a definition, I would imagine there would be many views on what would be included in that definition. I think the bill provides for a diversity of approaches in the corporate sector to address this idea. It's a long-standing matter of public debate and concern and it's what the minister addressed in his letter to the committee in saying that gender diversity is key and that our performance can be improved as a country. This is something that's already being pursued under security rules and that will proceed, and our legislation reinforces it.

I think what goes beyond that, though, where the government is showing leadership, is to allow for a diversity of approaches to encompass other ways of viewing diversity in a corporate context and having that information come forward in a way that adds to the overall richness of approaches taken in the country. We don't rule anything out, and that's why there's no definition to prescribe this or narrow it at the outset.

[Chandra Arya, Liberal, Nepean, ON]

Mr. Davies, gender diversity is good. I think we all support it. If that is the objective, good. If there's an objective beyond that, that's also good. However, putting a word in without defining it or explaining what direction that word should lead to creates a problem in this bill, at least in my opinion. We have seen the studies done in various countries—

[The Chair, Liberal, Dan Ruimy]

Your time's up. Sorry.

Mr. Dreeshen is next.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you, Mr. Chair, and my thanks to our witnesses here today.

This is the minister's second bill since taking office a year ago. Just like the first one, it comes straight out of the previous Conservative government's budget in 2015, so we certainly appreciate that the time has not been wasted on the present government.

I'd like to talk about some of the issues you spoke of. You said 270,000 companies would be included under this particular ruling. I wonder if you could explain the diversity of those companies and what we are looking at, so that the public has a bit of an idea of what the effect will be.

[Mitch Davies]

Thank you, Mr. Chair, for the question.

What requires some understanding is that there are 270,000 companies covered under the Canada Business Corporations Act, but the diversity policy will apply to distributing corporations, which number around 3,000, of which around 600 are on the TSX. That is the population of companies to which the diversity requirement would apply. Obviously, if you have a corporation set up to run your private business, this regulatory requirement wouldn't require anything further of you.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

The other point you brought up, looking to the future, was about co-operatives and not-for-profit companies. Could you explain what the thoughts are there?

The other item that was mentioned was about voters having the opportunity, if it's a full slate, to vote somebody out. I'm thinking more of the directors we have in small community organizations and so on, and how some people might think that would be an opportunity to finally get off a board, so they'd see it as something positive. I'm sure that's not exactly what was meant.

Could you explain how that function would work, and also try to tie in what is out there in the future for co-operatives and non-profits?

[Mitch Davies]

I'll start, and then I'll ask my colleague to add a few comments.

I'll go back to the intention of the changes in the voting rules, which is a part of the question. What's being done is to change from what's called a pluralist model to a majority-vote model, which has been called for by experts in corporate governance, particularly those on the owner side, in order to improve the responsiveness of the folks who are put forward for board positions to the shareholders by requiring they have majority support rather than simply perhaps one “yes” vote, with all the other votes being uncontested, or being part of a slate, which doesn't allow for differentiation between different directors. We're using this approach to extend shareholder democracy and create more responsiveness.

This equally applies if it's a distributing entity of any sort. Obviously, a non-profit isn't distributing to its ownership, so the policy doesn't apply.

The point is to make a stronger linkage between the interests of the owners of the firm and the activity of the board of directors that actually carries out that fiduciary role.

[Mark Schaan]

I'll just add that when we looked at the possible amendments to the various structures, your first question on the diversity of firms and types that are covered by the three acts in question was not lost on us. Of those 270,000 firms, as my colleague points out, the vast majority are small and medium-sized enterprises, private corporations, so annual voting and a number of those things simply won't apply because they're not distributing companies.

The same thing goes for co-operatives, although if there was a surge of distributing co-operatives, they would be subject to the same rules.

However, the goal within the overall package of amendments was to balance ease of doing business and administrative burden with appropriate checks and balances on governance and allowing for shareholder input where it is called for, and that's particularly the case when you're trading in the public securities markets.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Regarding the situation of proxy votes and that type of thing in a shareholder meeting, can you explain the process there, and how that would tie into a slate that might be presented at a shareholder meeting, and some of the nuances that might take place if there happen to be changes that occur on the floor?

[Mark Schaan]

Corporate governance will still follow the normal traditional call for meetings. For instance, in the appointment of directors, the number of people standing for election wouldn't change. They'll have to be in the proxy circular circulated by management to all shareholders, and proxies will be informed at the same time in advance.

The one novel change is that currently that entire package needs to go physically by mail to all members. This bill will allow for notice and access, so instead the notice of meeting will be sent to all owners and beneficial owners of shares and they'll be able to elect a proxy and facilitate their vote, but they'll be able to access all of that information online from the company's website.

In terms of the proxy situation and anyone holding a proxy, all of those motions would still need to be tabled far enough in advance to allow for timely consideration by voting members.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

What types of regulatory costs or what kinds of costs do businesses think will be involved? I know that you had massive consultations and so on, and somebody is always going to ask what this is going to cost to implement and what advantage they're going to gain versus the cost they're going to incur.

Have you, within the legislation, looked at perhaps reducing some of the other regulatory burdens they have to balance that out?

[Mitch Davies]

What's at the heart of the change, in terms of the notice and access system, is relieving companies of costs by using digital conveyance for a lot of paper that otherwise has to be prepared and mailed to shareholders. That's a big win in terms of the costs of doing business.

In terms of the rollout of these changes, I think we've been quite mindful that at one level we're addressing 10% or thereabouts of the market share of incorporated entities in the country. You can also incorporate at the provincial level, so we also have an overlay of provincial securities rules with which we're seeking to maximize our alignment. We don't want to be offside by creating a whole set of other burdens or requirements. That's something we've taken quite deliberately into consideration in crafting this bill.

With respect to preparing slates for voting and in order to respond to majority voting, I think the effort required there would really just be to find candidates who will be suitable, who will actually get the majority nod to be on your board of directors. I wouldn't describe that as a cost. I think that's a win in terms of overall governance.

On the diversity policy, here we're mainly extending or broadening the option to have a broader and fuller diversity policy expressed beyond what might now be required by a securities exchange, which might be limited to gender. This allows for companies to go further, and that option will be taken up by companies as they see fit.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you.

[The Chair, Liberal, Dan Ruimy]

We're going to move to Mr. Masse. You have seven minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for being here today.

It's true that this bill has taken quite some time to get to the House, given the fact that a lot of money laundering has gone on through processes that we can actually control rather easily, so I'm glad to see this come forward.

There are some chances to make improvements to the bill. I would recognize that this is only the second time that the bill has come to Parliament in over 40 years. Hopefully we'll see this get done much more efficiently.

Importantly, some changes are warranted. I know we've had some discussions here about the definition of diversity. In terms of consultations from 2014 on, who did you consult and where? Is that list available for members? I didn't check your website to see if it was up there. I imagine it might be. Could you give us a little background on that? That would be helpful, please.

[Mark Schaan]

Thank you for the question.

In 2014, we did consult, using a document that posed a wide array of corporate governance issues within the Canada Business Corporations Act on a whole series of elements. In fact, we received over 88 responses, all of which are publicly available on our website.

On the issue of diversity, for instance, we actually had 43 submissions. Not everyone responded to every single element that we asked about, but we asked about over two dozen elements of the Canada Business Corporations Act to try to get a wide range of views. Those elements included diversity, organizations, corporate governance organizations, law firms, the corporate community, pension funds, etc.

[Brian Masse, NDP, Windsor West, ON]

That's good to hear. Of the 43 submissions.... We're just kind of leaving a blank diversity out there in terms of interpretation. Were there any other suggestions or guidance offered as alternatives to maybe sharpen the definition of diversity a little bit?

[Mitch Davies]

I won't try to artificially discern the weighting of the views. I think the area of diversity that is represented most clearly and probably most frequently in the submissions we received is that of gender. This is one also where there is more data, more evidence in terms of where we stand. There are also, obviously, gaps between where society generally.... There are different views as to where we need to be, but improvement is definitely what's being sought in that regard.

As for diversity more broadly, I would echo the minister, who spoke at the introduction of the bill and talked about the broad concept of diversity as being a core goal of the government. This is something that adds to the richness of our business life, our community, and the success of our businesses—

[Brian Masse, NDP, Windsor West, ON]

I get that—

[Mitch Davies]

From that point of view—

[Brian Masse, NDP, Windsor West, ON]

I get that—

[Mitch Davies]

—this is an invitation for the business community to respond to that call.

[Brian Masse, NDP, Windsor West, ON]

I get that. I only have a limited time here, so I'm sorry to interrupt, Mr. Davies, but....

There was a blank opening, so I would suggest that the only other bill this committee really dealt with was the Marrakesh treaty, which went rather quickly through here. This was with regard to print availability for the blind. We have over 50% unemployment for persons with disabilities who are looking for work in the workplace. That doesn't count all the ones who have given up. I hope to deal with that a little later.

I am going to move to the “comply or explain” idea. Comply or explain is not a new concept in this situation. In fact, several provinces and some territories already have this in place. Alberta is moving towards it as well. British Columbia is about the only one that doesn't have comply or explain.

This has been in place for a number of years. Since 2014, the diversity of boards of major corporations has gone up only 2.4% for women. I think that by math alone you'd be able to get better than 2.4%. What type of consultation has been done with the provinces, and what's failing in their system to raise the tide of women?

Finally, what types of penalties are there on comply or explain? Is “comply” basically saying, “I'm going to do this. I've added one position in three years”, and “explain” saying, “We're just not really good at this, so we've had only one position in two years”? That doesn't even count the other diversity issues with visual disabilities, other physical disabilities, or race and ethnicity diversity. What penalties are in place, and what have you learned from the provinces? It just doesn't seem to be working very quickly.

[Mitch Davies]

I'll start and go back to the point about the provincial systems that have taken on comply or explain. The TSX would be notable, and it applies to most of corporate Canada.

I can't speak to how they would view how this is unfolding in what they have put in place. I certainly acknowledge the statistics and the points you are raising in terms of the progress made so far. I would say that obviously it's not finished and it needs to improve in terms of the trends.

The United Kingdom and Australia are jurisdictions we looked at that have implemented comply or explain. In the U.K.'s case, they had a doubling of representation of women on boards and in senior management. Australia actually exceeded that, coming close to tripling representation. I see no particular reason why the Canadian corporate community wouldn't be able to meet or exceed this sort of progress.

The minister has also made it very clear, and has done so publicly, that there is a loop-back in this mechanism, which is that all these filings will come back to the director of Corporations Canada so that we can analyze and look at the improvements and reflect on whether or not more needs to be done. The minister has been open to that possibility.

As for a penalty, there is no penalty structure, other than bringing more transparency to the matter, bringing formality to it, making it something that corporations have to do and take account of, and then obviously providing a feedback loop to the public so that we can evaluate whether we are making progress and decide on the next steps.